Direct cash transfer system

Transcription

1 Direct cash transfer system A new approach of agri. policy implementation Tian Weiming China Agricultural University

2 Criteria for good policies Based on textbook economic doctrines, a good policy should be: Targeting directly to the policy objective Causing minimum distortion The textbook models pays limited attention to policy implementation costs. In real world, implementation costs are often very high, depending on social institutions, culture, etc. Rent-seeking behaviors of implementation bodies often worsen the situation. 2

3 The recent agricultural support policies in China Issues of targeting The new set of policies aim primarily at promoting grain production rather than raising farmers incomes. By nature, direct payment to grain producers and subsidy to improved seeds belong to targeted policy measures provided effective monitoring of producers behaviors could be exercised. This precondition is difficult to meet in practice. In contrast, subsidized farm machines and other inputs can be used for whatever purposes. Therefore, these subsidies were not well targeted to grain production in practice. 3

4 The recent agricultural support policies in China Issues of distortions According to the initial design, all of the four types of agricultural subsidy were linked to inputs. Direct payment to grain producers: Grain area or output Subsidy to improved seeds: Selected seeds or breeds Subsidy to farm machines: Selected types of farm machines (and thus service costs of machinery operations) Comprehensive farm inputs subsidy: Selected inputs As a result, these subsidies cause some distortions to markets of farm products and inputs. 4

5 The recent agricultural support policies in China Issues of implementation costs Given the numerous households plus fragmented plots used by each household, it is unpractical to monitor what farmers actually plant. Issues of behaviors of implementation bodies In order to prevent local government bodies from withholding transferred payment to producers, direct transfer to farmers bank accounts was introduced and extended in a gradual way. While this arrangement can improve transfer efficiency, it also reduces incentives to local governments. 5

6 Direct cash transfer system as a creative approach At present, the direct payment to grain producers and the comprehensive farm input subsidy are turned largely into delinked (income) subsidies. In most provinces, the payment is linked to historical grain planting areas or the previous taxable areas. The major merits of the new system: Bank transfer is timely and transparent; Farmers have freedom to decide how to use the money; It is economically efficient in implementation. Thus, it is a good way for implementing policies that aim at transferring income to rural people. Further targeting can be based on socioeconomic characteristics of areas. 6

7 Direct cash transfer system as a creative approach The major problems: Farmers knew the subsidies and recognized their important roles to household business. However, revealed intention to increase grain production was weak. Horticulture and cash crops were regarded as more desirable alternatives in most regions. Local government bodies are reluctant to take initiative actions due to lacking incentives. They must follow the policies due to the binding central disciplines. 7

8 Direct cash transfer system as a creative approach Approaches for betterment: Induced by changing market conditions The recent observations show that households with major laborers migrated out tend to plant more grains again for saving labor. Improved machinery services are helpful for such changes. Revised incentives to local governments The central government introduced in 2005 a reward system to major grain production counties aiming at encouraging county governments to do better jobs. The coverage was extended in 2007 to major hog production counties. 8

9 Summary The Chinese government takes pragmatic approach in improving the policy system. It seems that many reform measures focus more on perceived short-term priorities and problems than long-term rationales. Institutional aspect is well recognized, but it is difficult to take radical measures. However, by approach of trail and error, betterment of the policies can be realized. Of course, this is a unending process. 9

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